Public Joint Stock Company Novorossiysk Commercial Sea Port and Subsidiaries

Public Joint Stock Company Novorossiysk Commercial Sea Port and Subsidiaries Consolidated Financial Statements For the Year Ended and Аuditor s Report

TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1 INDEPENDENT AUDITOR S REPORT 2-3 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER : Consolidated statement of comprehensive income 4 Consolidated statement of financial position 5 Consolidated statement of changes in equity 6 Consolidated statement of cash flows 7 Notes to the consolidated financial statements 8-53

STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER Management is responsible for the preparation of consolidated financial statements that present fairly the consolidated financial position of Public Joint Stock Company Novorossiysk Commercial Sea Port and its subsidiaries (the Group ) as at, and the consolidated results of its operations, cash flows and changes in equity for the year then ended, in compliance with International Financial Reporting Standards ( IFRS ). In preparing the consolidated financial statements, management is responsible for: properly selecting and applying accounting policies; presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's consolidated financial position and financial performance; and making an assessment of the Group's ability to continue as a going concern. Management is also responsible for: designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group; maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS; maintaining statutory accounting records in compliance with statutory legislation and accounting standards; taking such steps as are reasonably available to them to safeguard the assets of the Group; and preventing and detecting fraud and other irregularities. The consolidated financial statements of the Group for the year ended were approved by management on 16 April 2013: Y.V. Matvienko Acting Chief Executive Officer G.I. Kachan Chief Financial Officer 1

INDEPENDENT AUDITOR S REPORT To the Shareholders and the Board of Directors of Public Joint Stock Company Novorossiysk Commercial Sea Port: We have audited the accompanying consolidated financial statements of Public Joint Stock Company Novorossiysk Commercial Sea Port and its subsidiaries (the Group ), which comprise the consolidated statement of financial position as at, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of the accompanying consolidated financial statements in accordance with International Financial Reporting Standards ( IFRS ) and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the fair presentation of these consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 2

We believe that the audit evidence we have obtained is sufficient and appropriate to express an opinion on the fair presentation of these consolidated financial statements. Opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at, and its consolidated financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 16 April 2013 Moscow, Russian Federation Sedov A.V., Partner (certificate no 01-000487 dated 13 December ) ZAO Deloitte & Touche CIS The Entity: OJSC «NCSP» Certificate of state registration 3207, issued by the Administration of Novorossiysk by 11.12.1992. Certificate of registration in the Unified State Register 1022302380638 of 23.08.2002, issued by Novorossiysk Inspectorate of the Russian Ministry of Taxation. Address: 353901, Russian Federation, Krasnodar region, Novorossiysk, Portovaya st., 14 Independent Auditor: ZAO Deloitte & Touche CIS Certificate of state registration 018.482, issued by the Moscow Registration Chamber on 30.10.1992. Certificate of registration in the Unified State Register 1027700425444 of 13.11.2002, issued by Moscow Interdistrict Inspectorate of the Russian Ministry of Taxation 39. Certificate of membership in «NP «Audit Chamber of Russia» (auditors SRO) of 20.05.2009 3026, ORNZ 10201017407. 3

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER (in thousands of US Dollars, except earnings per share) Notes REVENUE 6 1,033,680 1,049,539 COST OF SERVICES 7 (435,676) (495,440) GROSS PROFIT 598,004 554,099 Selling, general and administrative expenses 8 (87,528) (78,168) Loss on disposal of property, plant and equipment 12 (2,288) (692) Impairment of goodwill 13 (89,456) - OPERATING PROFIT 418,732 475,239 Interest income 12,009 4,434 Finance costs 9 (144,263) (144,619) Share of loss in joint venture, net 16 (778) (4,746) Foreign exchange gain/(loss), net 130,200 (167,940) Other (loss)/income, net (20) 2,152 PROFIT BEFORE INCOME TAX EXPENSE 415,880 164,520 Income tax expense 10 (99,920) (34,207) PROFIT FOR THE YEAR 315,960 130,313 OTHER COMPREHENSIVE INCOME/(LOSS) Effect of translation to presentation currency 64,023 (54,508) Actuarial loss on defined benefit plans 24 (1,624) - TOTAL COMPREHENSIVE INCOME FOR THE YEAR 378,359 75,805 Profit for the year attributable to: Equity shareholders of the parent company 310,771 127,100 Non-controlling interests 5,189 3,213 315,960 130,313 Total comprehensive income attributable to: Equity shareholders of the parent company 371,407 74,144 Non-controlling interests 6,952 1,661 378,359 75,805 Weighted average number of ordinary shares outstanding 18,743,128,904 19,087,586,568 BASIC AND DILUTED EARNINGS PER SHARE (US Dollars) 0.0166 0.0067 Y.V. Matvienko Acting Chief Executive Officer G.I. Kachan Chief Financial Officer The notes on pages 8 to 53 are an integral part of these consolidated financial statements. 4

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER (in thousands of US Dollars) ASSETS Notes NON-CURRENT ASSETS: Property, plant and equipment 12 2,068,857 1,967,938 Goodwill 13 1,489,007 1,491,070 Mooring rights 14 7,864 7,980 Investments in securities and other financial assets 15 11,159 34,842 Investment in joint venture 16 8,916 9,425 Spare parts 5,467 5,007 Deferred tax assets 10 1,075 7,318 Other intangible assets 2,691 1,593 Other non-current assets 9,958 13,971 3,604,994 3,539,144 CURRENT ASSETS: Inventories 17 8,195 11,258 Advances to suppliers 8,093 2,991 Trade and other receivables, net 18 43,037 47,796 VAT recoverable and other taxes receivable 23,965 41,132 Income tax receivable 272 41,209 Investments in securities and other financial assets 15 50,131 21,833 Cash and cash equivalents 19 242,579 127,522 376,272 293,741 TOTAL ASSETS 3,981,266 3,832,885 EQUITY AND LIABILITIES EQUITY: Share capital 20 10,471 10,471 Treasury shares (281) (281) Foreign currency translation reserve (41,413) (103,641) Retained earnings 1,327,102 1,032,044 Equity attributable to shareholders of the parent company 1,295,879 938,593 Non-controlling interests 32,445 25,582 TOTAL EQUITY 1,328,324 964,175 NON-CURRENT LIABILITIES: Long-term debt 21 2,171,762 2,113,843 Obligations under finance leases 22 6,089 - Cross currency and interest rate swap 23 4,602 - Defined benefit obligation 24 9,551 7,286 Deferred tax liabilities 10 292,082 266,907 Other non-current liabilities 949 2,864 2,485,035 2,390,900 CURRENT LIABILITIES: Current portion of long-term debt 21 90,200 392,413 Current portion of obligations under finance leases 22 2,711 - Trade and other payables 26 12,380 18,251 Advances received from customers 26,392 47,442 Taxes payable 6,113 4,292 Income tax payable 11,183 4,034 Accrued expenses 27 18,928 11,378 167,907 477,810 TOTAL EQUITY AND LIABILITIES 3,981,266 3,832,885 The notes on pages 8 to 53 are an integral part of these consolidated financial statements. 5

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER (in thousands of US Dollars) Notes Share capital Attributable to shareholders of the parent company Foreign currency Treasury Share translation Retained shares premium reserve earnings Total Noncontrolling interests Total At 1 January 10,471-9,255 (50,685) 996,330 965,371 23,927 989,298 Profit for the year - - - - 127,100 127,100 3,213 130,313 Other comprehensive income - - - (52,956) - (52,956) (1,552) (54,508) Total comprehensive income for the year - - - (52,956) 127,100 74,144 1,661 75,805 Buy-back of shares 20 - (281) (9,255) - (76,741) (86,277) - (86,277) Dividends 11 - - - - (14,645) (14,645) (6) (14,651) At 10,471 (281) - (103,641) 1,032,044 938,593 25,582 964,175 At 1 January 10,471 (281) - (103,641) 1,032,044 938,593 25,582 964,175 Profit for the year - - - - 310,771 310,771 5,189 315,960 Other comprehensive income - - - 62,228 (1,592) 60,636 1,763 62,399 Total comprehensive income for the year - - - 62,228 309,179 371,407 6,952 378,359 Dividends 11 - - - - (14,121) (14,121) (89) (14,210) At 10,471 (281) - (41,413) 1,327,102 1,295,879 32,445 1,328,324 The notes on pages 8 to 53 are an integral part of these consolidated financial statements. 6

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER (in thousands of US Dollars) Notes Cash flows from operating activities Cash from operations 29 599,556 554,586 Income tax paid (33,898) (90,329) Interest paid (138,710) (143,895) Net cash generated by operating activities 426,948 320,362 Cash flows from investing activities Proceeds from disposal of property, plant and equipment 5,360 1,064 Purchases of property, plant and equipment (55,784) (95,081) Proceeds from investments in securities and other financial assets 111,710 198,106 Purchases of investments in securities and other financial assets (119,726) (182,153) Acquisition of subsidiaries, net of cash acquired - (2,100,577) Interest received 8,402 6,861 Purchases of other intangible assets (1,987) (1,026) Net cash used in investing activities (52,025) (2,172,806) Cash flows from financing activities Repayments of loans and borrowings (388,726) (115,449) Proceeds from loans and borrowings 21 136,207 1,938,300 Dividends paid 11 (14,183) (14,797) Advances paid under lease contracts 22 (6,330) - Payment for buy-back of shares 20 - (86,151) Payment for shares buy-back costs 20 - (126) Net cash (used in)/generated by financing activities (273,032) 1,721,777 Net increase/(decrease) in cash and cash equivalents 101,891 (130,667) Cash and cash equivalents at the beginning of the year 19 127,522 265,017 Effect of translation into presentation currency on cash and cash equivalents 13,166 (6,828) Cash and cash equivalents at the end of the year 19 242,579 127,522 The notes on pages 8 to 53 are an integral part of these consolidated financial statements. 7

FOR THE YEAR ENDED 31 DECEMBER 1. GENERAL INFORMATION Organisation Public Joint Stock Company ( PJSC ) Novorossiysk Commercial Sea Port ( NCSP ) was founded in 1845. NCSP was transformed from a state-owned enterprise to a PJSC in December 1992. NCSP s principal activities include stevedoring, additional port services, and sea vessel services. NCSP and its subsidiaries (the Group ) primarily operate in the Russian Federation. The principal activities and significant entities of the Group as at were as follows: Significant subsidiaries Nature of business Country of incorporation Ownership % held* LLC Primorsk Trade Port PJSC Novorossiysk Grain Terminal OJSC Novoroslesexport OJSC IPP OJSC Novorossiysk Shipyard LLC Baltic Stevedore Company PJSC Fleet Novorossiysk Commercial Sea Port CJSC SoyuzFlot Port Stevedoring and additional port services Stevedoring and additional port services Stevedoring and additional port services Stevedoring and additional port services Stevedoring and marine vessels repair services Stevedoring and additional port services Tug and towing services and bunkering Tug and towing services Russian Federation 100.00% 100.00% Russian Federation 100.00% 100.00% Russian Federation 91.38% 91.38% Russian Federation 99.98% 99.98% Russian Federation 65.18% 65.18% Russian Federation 100.00% 100.00% Russian Federation 95.19% 95.19% Russian Federation 99.99% 99.99% * The ownership is calculated based on the total number of shares owned by the Group as of the reporting dates including preferred shares. The main subsidiaries of the Group are located in the eastern sector of the Black Sea in Tsemesskaya Bay as well as in the Leningrad and Kaliningrad District. NCSP is the largest stevedore of the Group and the holding company. It holds the primary cargoloading district, the Sheskharis oil terminal, the technical support base and the passenger terminal in Novorossiysk. NCSP has eight significant subsidiaries, the primary activities of which are as follows: LLC Primorsk Trade Port ( PTP ) PTP is involved in the transshipment of oil and oil products in the port of Primorsk, Leningrad District. The Group acquired 100% of the shares in PTP on 21 January, in order to materially increase the scale of its operations and become a market leader in port management in Russia s two key regions, the North-Western and Southern basins. PJSC Novorossiysk Grain Terminal ( Grain Terminal ) Grain Terminal manages grain storage and a shipment terminal in the western part of the Tsemesskaya Bay. OJSC Novoroslesexport ( Novoroslesexport ) Novoroslesexport provides stevedoring and storage services for the export of timber, containerised cargo, ferrous and nonferrous metals. 8

FOR THE YEAR ENDED 31 DECEMBER OJSC IPP ( IPP ) IPP is a liquid-cargo processing enterprise, and also provides bunkering services. OJSC Novorossiysk Shipyard ( Shipyard ) Shipyard is the largest ship-repair enterprise in the South of Russia that has a major universal port at its disposal. The cargo specialization of Shipyard is the transshipment of ferrous metals and cement. It also handles loose goods in soft containers and big bags, construction cargo, oversize cargo, food and perishable cargo, and roll-on roll-off cargo at its own ferry berth. LLC Baltic Stevedore Company ( BSC ) BSC is a stevedoring company operating the container, car-ferry, cargo and passenger terminal of the Baltiysk port in the Kaliningrad District. PJSC Fleet Novorossiysk Commercial Sea Port ( Fleet ) Fleet is a maritime tug and towing company. It provides most of the tug and towing, mooring and bunkering services for ships and other maritime vessels at and around the Novorossiysky Port (the Port ). In addition, it carries out emergency services such as transferring vessels to shelter zones during emergencies, cleaning and containment services for oil or other liquid spills in and around the Port and hazardous material response and waste management services pursuant to its agreement on water use with Kubanskoye Basin Department of the Krasnodar District under the Russian Ministry of Natural Resources. CJSC SoyuzFlot Port ( SFP ) SFP is a subsidiary of PTP. According to a decision of the shareholders meeting on 25 April, the company s name was changed from CJSC Sovfracht-Primorsk to the Joint Stock Company SoyuzFlot Port. SFP is the operator of towing, pilotage and tug and towing services in the Port of Primorsk in the Leningrad District. Golden share According to decree No.1343-r dated 12 August 2010, which was issued by the Government of the Russian Federation, the Government has the right to obtain a golden share in companies. This golden share provides the holder with special rights in comparison with other shareholders, and allows the state to block decisions made by shareholders to amend the charter, as well as decisions relating to liquidation, corporate restructuring and significant transactions. During 2010, the Government enacted this right to hold a golden share in the Group so that it may exercise significant influence over the Group without the actual need to acquire significant ownership. Going concern assumption The accompanying consolidated financial statements of the Group have been prepared assuming that the Group will continue as a going concern, which presumes that the Group will, for the foreseeable future, be able to realise its assets and discharge its liabilities in the normal course of business. 9

FOR THE YEAR ENDED 31 DECEMBER 2. BASIS FOR PRESENTATION The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ( IFRS ). In preparing these consolidated financial statements, management complied with existing standards and interpretations that are effective or available for early adoption at the Group s IFRS annual reporting date. Adoption of new and revised International Financial Reporting Standards The accounting policies adopted are consistent with those of the previous year, except for the following new and amended IFRS effective as of 1 January and the early adoption of IAS 19 Employee Benefits (as revised in June ): IFRS 1 (Revised 2008) First-time Adoption of International Financial Reporting Standards. Amendments to severe hyperinflation. Effective 1 July ; IFRS 1 (Revised 2008) First-time Adoption of International Financial Reporting Standards. Amendments to removal of fixed dates of first-time adopters. Effective 1 July ; IFRS 7 Financial Instruments: Disclosures. Amendments to transfers of financial assets. Effective 1 July ; IAS 12 Income Taxes. Amendments to IAS 12 Income Taxes Deferred Tax: Recovery of Underlying Assets. Effective 1 January. The adoption of the amendments to IFRS 1 (Revised 2008) First-time Adoption of International Financial Reporting Standards, IFRS 7 Financial Instruments: Disclosures and IAS 12 Income Taxes did not have any impact on the financial position or performance of the Group. IAS 19 Employee Benefits (as revised in June ) In the current year, the Group has applied IAS 19 (as revised in June ) Employee Benefits and the related consequential amendments in advance of their effective dates. The amendments to IAS 19 change the accounting for defined benefit schemes and termination benefits. For the Group, given that the plans are unfunded, the most significant change relates to the accounting for changes in defined benefit obligations. The amendments require the recognition of changes in defined benefit obligations when they occur in other comprehensive income; such gains and losses and excluded permanently from profit and loss. Historically, the Group s policy involved the recognition of actuarial gains and losses, immediately, in profit or loss. The transitional provisions in IAS 19 (as revised in June ) require application of the revised policy retrospectively. The Group has not retrospectively restated financial information as of and for the year ended for the adoption of IAS 19 (as revised in June ), given that the impact is both qualitatively and quantitatively immaterial. Furthermore, the interest cost and expected return on scheme assets used in the previous version of IAS 19 are replaced with a net-interest amount under IAS 19 (as revised in June ), which is calculated by applying a discount rate to the net defined benefit liability or asset. IAS 19 (as revised in June ) also introduces more extensive disclosures in the presentation of the defined benefit cost. The Group maintains an unfunded defined benefit plan, as such, the primary impact of the application of IAS 19 (as revised in June ) impact of the immediate recognition of actuarial gains and losses in other comprehensive income (Note 24). 10

FOR THE YEAR ENDED 31 DECEMBER Standards and Interpretations issued but not yet effective At the date of approval of the Group s consolidated financial statements, the following new and revised Standards and Interpretations have been issued, but are not effective for the current year: Effective for periods annual periods beginning on or after IFRS 7 Financial Instruments: Disclosures amendments enhancing disclosures about offsetting financial assets and financial liabilities 1 January 2013 IFRS 9 Financial Instruments New requirements for classifying and measuring financial assets revised requirements for the classification and measurement of financial liabilities 1 January 2015 IFRS 10 Consolidated Financial Statements New standard published in May 1 January 2013 IFRS 11 Joint Arrangements New standard published in May 1 January 2013 IFRS 12 Disclosure of Interests in Other Entities New standard published in May 1 January 2013 IFRS 13 Fair Value Measurement New standard published in May 1 January 2013 IAS 1 Presentation of financial statements amendment to revise the presentation of other comprehensive income 1 January 2013 IAS 27 Separate Financial Statements New standard published in May 1 January 2013 IAS 28 Investments in Associates New standard published in May 1 January 2013 IAS 32 Financial Instruments: Presentation amendments to application guidance on the offsetting of financial assets and financial liabilities 1 January 2014 Management is currently evaluating the impact of adoption of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, IFRS 13 Fair Value Measurement and amendment to IFRS 7 Financial instruments: Disclosures. For other standards and interpretations management anticipates that their adoption in future periods will not have material effect on the financial statements of the Group in future periods. Functional and presentation currency The functional currency of NCSP and principally all of its subsidiaries is the Russian Rouble ( RUR ). The consolidated financial statements are presented in US Dollars as management considers the USD to be a more relevant presentational currency for international users of the consolidated financial statements of the Group. Exchange rates The Group used the following exchange rates in the preparation of the consolidated financial statements: Year-end rates RUR / 1 USD 30.3727 32.1961 RUR / 1 EUR 40.2286 41.6714 Average for the year RUR / 1 USD 31.0930 29.3874 RUR / 1 EUR 39.9524 40.8848 11

FOR THE YEAR ENDED 31 DECEMBER 3. SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements incorporate the financial statements of NCSP and its subsidiaries, from the date that control effectively commenced until the date that control effectively ceased. Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are prepared for the same reporting period as those of NCSP; where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies in line with those of the Group. All intra-group balances, transactions, and any unrealised profits or losses arising from intra-group transactions, are eliminated upon consolidation. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. When the consideration transferred by the Group includes any assets or liabilities resulting from a contingent consideration arrangement, they are measured at the acquisition-date fair value and included with the consideration transferred. Subsequent changes in the fair value of the contingent consideration are adjusted against the cost of the acquisition when they qualify as measurement period adjustments, with corresponding adjustments against goodwill. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date and is subject to a maximum of one year, and measurement period adjustments are adjustments arising from additional information obtained during the measurement period, about facts and circumstances that existed at the acquisition date. Contingent consideration classified as equity is not measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is measured at subsequent reporting dates in accordance with the relevant IFRSs. When a business combination is achieved in stages, the Group s previously held equity interest in the acquiree is measured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from the interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. At the acquisition date, the acquiree s identifiable assets and liabilities, meeting the recognition criteria of IFRS 3 (2008) Business Combinations, are generally recognised at their fair value except that: Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively; Liabilities or equity instruments related to the replacement by the Group of an acquiree s sharebased payment awards are measured in accordance with IFRS 2 Share-based Payment ; and Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations ( IFRS 5 ) are recognised and measured at fair value less costs to sell. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. 12

FOR THE YEAR ENDED 31 DECEMBER Goodwill is measured as the excess of the sum of consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amount of identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as bargain purchase gain. Non-controlling interest, identified separately from the Group s equity, may be initially measured either: (i) at fair value; or (ii) at the non-controlling interests proportionate share of the fair value of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction-bytransaction basis. Subsequent to acquisition, the non-controlling interest carrying amount is the amount at initial recognition, plus the non-controlling interests share of changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. Business combinations with third parties taking place prior to 1 January 2010 were accounted for in accordance with IFRS 3 (2004) Business Combinations. Investments in associates and joint ventures An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The results and assets and liabilities of associates and joint ventures are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets and Held for Sale and Discontinued Operations. Under the equity method, investments in associates and joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group s share of the net assets of the associate or joint venture, less any impairment in the value of individual investments. Losses of an associate or joint venture in excess of the Group s interest in that associate or joint venture (which includes any long-term interests that, in substance, forms part of the Group s net investment in the associate or joint venture) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate or joint venture recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. The requirements of IAS 39 Financial Instruments: Recognition and Measurement ( IAS 39 ) are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets ( IAS 36 ) as a single asset by comparing its recoverable amount (higher of value in use or fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. Where a Group entity transacts with an associate or joint venture of the Group, profit and losses resulting from transactions with associates or joint ventures are eliminated to the extent of the Group s interest in these associates. 13

FOR THE YEAR ENDED 31 DECEMBER Goodwill Goodwill arising on an acquisition of a business, as described in Business combinations above, is carried at cost as established at the acquisition date less accumulated impairment loss, if any. For the purpose of impairment testing, goodwill is allocated to each of the Group s cash-generating units expected to benefit from the synergy of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal. The Group s policy for goodwill arising on the acquisition of an associate is described under Investments in associates and joint ventures above. Foreign currencies In preparing the financial statements of the individual entities forming part of the Group, transactions in currencies other than the functional currency of each entity (foreign currencies) are recorded at the exchange rates prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at the end of each reporting period presented. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date the fair value was determined. Non-monetary items carried at historical cost are translated at the exchange rate prevailing on the date of the transaction. Exchange differences are recognised in profit or loss in the period in which they arise as a separate component, except for: Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; Exchange differences on transactions entered into to hedge certain foreign currency risks; and Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment. For the purpose of presenting consolidated financial statements for the Group, the assets and liabilities of entities in the Group with functional currencies other than the USD are translated in USD at exchange rates prevailing at the end of each reporting period presented. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates at the date of transactions are used. Exchange differences arising on these translations, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). Revenue recognition Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group, delivery has occurred, services have been rendered or construction works are fully completed, the amount of the revenue can be measured reliably, persuasive evidence of an arrangement exists and the collectability of the revenue is reasonably assured. 14

FOR THE YEAR ENDED 31 DECEMBER The Group s revenue is derived as follows: (i) (ii) (iii) (iv) Stevedoring services (liquid, dry bulk cargo, general cargo and containers transhipment) including loading and unloading of oil, oil products, grain, mineral fertilizes, chemicals, containers, timber, timber products, metal products (slabs, tubing, rolled metal and others), sugar, and other cargo, fuel bunkering; Additional port services provided to customers at their requests (e.g. forwarding, storage, custom documentation, repacking, ship repair services for all types of vessels and maintenance in docks, etc.); Fleet services including tugging, towing and other related services; and Other services mainly including the rental and resale of energy and utilities to external customers. Revenue from cargo-transhipment, fleet and additional port services is recognised when the services are accepted by the customers (typically after the loading or unloading of cargo, as defined by the sales terms). Revenue from other services is recognised when the services are provided to the customers. Prices for cargo transhipment and storage services are subject to Government regulations. The Group can provide discounts to its customers only within the limits set by the statutory legislation. Prices for additional port services, fleet services, ship repair and other services are set by the Group. Dividend income from investments is recognised when the Group s right to receive payment has been established. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Finance lease Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the consolidated statement of comprehensive income. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. 15

FOR THE YEAR ENDED 31 DECEMBER Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Depreciation of these assets is recorded on the same basis as for other property assets, and commences when the assets are put into operation. Transaction costs associated with the issuance of a debt instrument are recorded as a reduction of the liability, and are amortised to interest expense over the term of the related borrowing. In any period in which the borrowing is redeemed, the related unamortized costs are expensed. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Employee benefits Defined contribution plan The Group s Russian subsidiaries are legally obliged to make defined contributions to the Russian Federation State Pension Fund. The Group s contributions to the Russian Federation State Pension Fund relating to defined contribution plans are charged to the consolidated statement of comprehensive income in the period to which they relate. In the Russian Federation, all state social contributions, including contributions to the Russian Federation State Pension Fund, are collected through taxes of 0% to 30%, directly calculated based on the annual gross remuneration of each employee. The rate of contribution to the Russian Federation State Pension Fund varies from 0% to 22%. When the annual gross remuneration of an employee exceeds 512 thousand RUR (USD 16.5), the 10% tax rate is applied. Contributions to the defined contribution retirement benefit plan are recognised as an expense as employees render service. Defined benefit plans For defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations performed at the end of each reporting period presented. Actuarial assumptions are an entity s best estimates of the variables that will determine the ultimate cost of providing post-employment benefits. Actuarial assumptions include the financial assumptions dealing with items such as taxes paid by the plan in respect of services-related contributions to the balance sheet date, or in respect of remuneration granted in connection with the services. Remeasurement comprising actuarial gains and losses are recognised immediately in the balance sheet with a charge or credit to the statement of comprehensive income in the period in which they occur. Remeasurement recorded in the statement of comprehensive income is not recycled. Past service cost is recognised in profit or loss in the period of scheme amendment. The retirement benefit obligation recognised in the consolidated statement of financial position represents the present value of the defined benefit obligation. Income tax Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates enacted or substantively enacted at the end of each reporting period presented. 16

FOR THE YEAR ENDED 31 DECEMBER Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period presented and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized based on the tax laws and rates that have been enacted or substantively enacted at the end of each reporting period presented. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred taxes are recognised as an expense or income in the consolidated statement of comprehensive income, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or they arise from the initial accounting for a business combination. In case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer s interest in the net fair value of the acquirer s identifiable assets, liabilities and contingent liabilities over the cost. Property, plant and equipment The Group adopted IFRS effective 1 January 2005. As part of the adoption, the Group elected to utilise exemptions available for first-time adopters under IFRS 1, choosing to record property, plant and equipment at fair value (deemed cost). Valuations were performed by management with the assistance of independent appraisers as at 1 January 2005 and approved by the Group management. After that date, property, plant and equipment are stated at deemed cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Property, plant and equipment acquired through acquisitions of subsidiaries are recorded at fair value on the date of the acquisition, as determined by management with the assistance of an independent appraiser. Additions to property, plant and equipment are recorded at cost. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs, including overhaul expenses, are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Capitalised cost includes major expenditures for improvements and replacements that extend the useful lives of the assets or increase their revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalisation are charged to statement of comprehensive income as incurred. 17

FOR THE YEAR ENDED 31 DECEMBER Depreciation is charged so as to write off the cost or deemed cost of assets, other than land and property under construction, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Number of years Buildings and constructions 3-75 Machinery and equipment 2-40 Marine vessels 4-25 Motor transport 3-15 Other 2-30 Properties in the course of construction for production, rental or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes, for qualifying assets, borrowing costs capitalised in accordance with the Group s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are put into operation. Construction in progress comprise costs directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads that are incurred in construction as well as costs of purchase of other assets that require installation or preparation for their use. Depreciation of these assets, on the same basis as for other property assets, commences when the assets are put into operation. Construction in progress is reviewed regularly to determine whether its carrying value is fairly stated and whether appropriate provision for impairment is made. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Mooring rights and other intangible assets Intangible assets acquired separately are reported at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Amortisation of mooring rights and other intangible assets is charged to profit or loss. Mooring rights and other intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is the fair value at the acquisition date. Subsequent to initial recognition, mooring rights and other intangible assets acquired in a business combination are reported at cost less accumulated amortisation and impairment losses, on the same basis as intangible assets acquired separately. Useful lives of mooring rights and other intangible assets are as follows: Number of years Mooring rights 20 Marine vessels rights 10 Other intangible assets 3-5 18